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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Sensitivity analysis
I dont understand why in working out the sensitivity of revenue we can not take the = npv/ pv of revenue ie how much a revenue can fall to bring the NPV value to Zero. Instead based on the ACCA speciman paper, revenue sensititvy is = npv /pv of net contribution.
Given the above, how can one calculate the sensitivity of expenses? ie is it how much cost can rise to bring the NPV to a zero level by simply looking as gross expenses figure or one needs to take into account net contribution???
I explain how to calculate the sensitivity in my free lectures (they are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well).
If indeed the question asks for the sensitivity of the selling price, then it is NPV / PV of the revenue flows.
If it asks for the sensitivity of the sales volume then it is NPV / PV of contribution (because as the sales volume changes then both the total revenue and the total variable costs will change).
If it asked for the sensitivity of the variable cost per unit, then it would be NPV / PV of total variable costs.
Again, I do suggest that you watch my free lectures on this.